According to Weighted-factor Approach to strategic incentive management, if for any strategic business unit, return on assets is 25%, cash flow is 25%, strategic funds programs (developmental expenses) is 25% and market share increase is also 25%, then this will fall in which category?

The correct answer is- Medium Growth

Key Points

•  When the division/ department of a big organization is managed by its own  (independently) with its own framed vision and objectives, then it called as Strategic Business Unit.
• There is possibility of autonomous Planning and Functioning due to separation of business units.
•   There are some advantages of Strategic business unit, i.e. Quick Decision Making, Increase in Profits etc.
• SBU's can be created in any circumstances with having unique target market .
• Although SBU's operate independently, but it has to report to the headquarter of an organization directly and inform them about the current status of its working/ operation.
• For Example: LG (LG company deals in Washing machines, Purifier ,A.c. and other home appliances). All these units formed different SBU's so that its profit as well expenses can be tracked easily.
• Boston Consultancy Group Matrix studied all the SBU's of the company, as there are four cells which represent the size of strategic business unit, namely: Stars, Cash Cows, Question Mark, Dog.
• There are mainly three categories of SBU: High Growth, Medium Growth and Low Growth. When the weight of:
  • Return on Assets is 25%
  • Cash Flow is 25%
  • Strategic Fund Program is 25%
  • Market Share Increase is 25%

Then it lies under the category of Medium Growth. Similarly, there are different weights assigned to High Growth and Low Growth SBU's.

So, as per Weighted factor Approach to strategic incentive management, if for any SBU , Return on assets is 25%, Cash flow is 25%, Strategic fund program is 25% and Market Share increase is also 25%, then this will fall under the Medium Growth category.

Additional Information

•  High Growth Category represents, Return on Asset with 10%, Cash flow 0%, Strategic fund program 45% and Market Share increase 45%.
• Low Growth Category represents, Return on Asset with 50%, Cash flow 50%, Strategic fund program 0% and Market Share increase 0%.